World Economic Outlook Report : IMF

World Economic Outlook is a report published by the International Monetary Fund twice a year. The analyses entailing global economic development in the near and medium term are shared in this report. The international economy is discussed in length, including the concerns that affect industrialised nations, emerging nations, and economies that are transitioning to the market. It also details topics of pressing current interests. The second World Economic Outlook report is released in October 2022 and reflected upon the economic growth projections going forward.

The report is important for the aspirants of the IAS Exam and is a very crucial topic in exam preparation.

Aspirants can read about the International Monetary Fund (IMF) in the linked article.

World Economic Outlook Report 2022

According to the second WEO report 2022 the world is headed towards a global recession and prolonged stagnation unless the current policy course of monetary and fiscal tightening in advanced economies is quickly changed.

The main reasons explained by the report are the supply-side shocks, waning consumer and investor confidence and the war in Ukraine. These factors have provoked a global slowdown and triggered inflationary pressures.

All geographical areas will be impacted, but emerging nations are raising the most concern because several of them are on the verge of defaulting on their debt. Climate stress is growing, causing increasing loss and damage in countries that are already financially strapped and unable to prepare for calamities, let alone invest in their own long-term development.

The main highlights of the World Economic Outlook Report 2022 are given below:

• Global Growth Projections:
• • • According to projections, global growth will drop from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.
    • With the exception of the global financial crisis and the severe phase of the COVID-19 pandemic, this is the worst growth profile since 2001.
    • In 2023, the rate of global growth is anticipated to further slow. The worst is still to come, and for many, 2023 will seem like a recession.
    • The growth rate in China is anticipated to reach its lowest level in decades in 2023, except for the initial coronavirus outbreak, while the slowdown in the Euro area is anticipated to worsen.

• Inflation:

• • • Forecasts predict that the global inflation rate of global inflation would increase from 4.7 percent in 2021 to 8.8 percent in 2022 before falling to 6.5 percent in 2023 and 4.1 percent by 2024.
    • Most advanced economies have experienced upside inflation surprises, whereas emerging market and underdeveloped nations have experienced greater fluctuation.

• Global Economic Challenges:

• Slowdown in major economies- The world’s biggest economies are currently experiencing substantial slowdowns e.g.

• A decline in the US economy in the first half of 2022

• A decline in the Euro in the second half of 2022

• Extended COVID-19 outbreaks and lockdowns in China with an escalating crisis in the real estate market.

• Three major factors- The Russian invasion of Ukraine, a cost-of-living problem brought on by persistent and expanding inflation pressures and China’s slowdown all have a significant impact on the current global economic situation.

• China property crisis- If the crisis in China’s real estate market worsens, it might have significant cross-border implications on the banking industry as well as the economy of the country.

World Economic Outlook Report 2022 on India

• Growth Projections: 
  • The IMF has reduced its Financial Year 2023 growth forecast for India from its July projection of 7.4 percent to 6.8 percent.
  • For 2023, India has been projected to grow at 6.1%.
  • This is the largest reduction it has made for any major economy other than the USA. 
  • The IMF’s action comes after the World Bank lowered its FY23 growth prediction for India from 7.5 percent to 6.5 percent.

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Recommendations of IMF

• Monetary and Fiscal Policy Coordination:
  • In economies with excess aggregate demand and overheating labour markets, fiscal policy must work in conjunction with monetary policy to reduce demand.
  • Any advantages from future growth could be offset by a resurgent cost-of-living squeeze in the absence of price stability.
  • Central banks must take a serious stand while articulating their goals and the methods they will take to get there clearly.
• On Fighting Inflation:
  • Priority must be given to combating inflation, restoring normalcy to central bank balance sheets and quickly and persistently raising real policy rates above their neutral level in order to maintain control over inflation and inflation expectations.
• Climate Change Policy:
  • Global temperature goals are not in line with current global targets. By the end of the decade, emissions must be reduced by at least 25% in order to meet these targets.
  • Without immediate corrective action, climate change will eventually have devastating effects on global health and economic outcomes.
  • The ongoing energy crisis has also brought into clear focus the advantages for energy security that nations can gain by making the switch to safe, dependable energy sources in order to gradually reduce their dependency on fossil fuels and increase their reliance on renewable and low-carbon energy sources.
• Protecting the Vulnerable during the Adjustment:
  • Policymakers must shield society’s most vulnerable citizens from the effects of rising prices as the cost of living continues to increase.

World Economic Outlook Report 2021

Global economic prospects have worsened significantly since our last World Economic Outlook forecast in January. At the time, we had projected the global recovery to strengthen from the second quarter of this year after a short-lived impact of the Omicron variant. Since then, the outlook has deteriorated, largely because of Russia’s invasion of Ukraine causing a tragic humanitarian crisis in Eastern Europe and the sanctions aimed at pressuring Russia to end hostilities. The key findings of the World Economic Outlook in October 2021 are

Global growth

• Economic damage because of the Russia-Ukraine conflict will contribute to a significant slowdown in global growth in 2022. 
• Even as the war reduces growth, it will add to inflation. Fuel and food prices have increased rapidly, with vulnerable populations, particularly in low-income countries.
• Global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook Update. 
• Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term. 
• The global supply of several commodities decreases in this scenario. As a result, oil prices increase by 10% in 2022 and 15% in 2023, while metal prices increase by 5% in 2022 and 7.5% in 2023
• Shortages of several commodities lead to additional disruption of supply chains, most notably in Europe, and add to the impact on inflation and activity. The combination of supply disruptions and higher energy prices in Europe, and Asia to a lesser extent, leads to weakened confidence, further dampening activity in those regions.

Inflation

• Inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures. 
• For 2022, inflation is projected at 5.7% in advanced economies and 8.7% in emerging market and developing economies 1.8 and 2.8 percentage points higher than projected in January.
•  In some advanced economies, including the United States and some European countries, it has reached its highest level in more than 40 years, in the context of tight labour markets.

World Economic Outlook and Global Growth Projections 2021-22

The growth projections of a few advanced economies and emerging and developing economies, as mentioned by IMF’s WEO are given in the table below:

World Economic Outlook Report 2020

The IMF published the recent edition of the World Economic Outlook in October 2020 after the earlier release in April 2020. Both the reports mostly focused on the impact of coronavirus-led economic slowdown and future growth prospects.

Get all important reports published by international organizations in the linked article. 

COVID-19 & World Economic Outlook Projections

The key findings of the World Economic Outlook in October 2020 are:

1. A deep recession in 2020 – The report mentioned a projection of less severe yet deep recession in the year 2020 due to the slowdown in economic activities across the globe due to lockdown.
2. The key factors that led to rapid recovery in the economy and avoided a financial catastrophe are:
   • Sizable, swift, and unprecedented fiscal, monetary, and regulatory responses.
   • Maintenance of disposable income for households
   • Protection of cash flows for firms
   • Support of credit provisions
3. The report suggests that emerging markets and developing economies are still unsecured due to the following reasons:
   • The pandemic continues to spread in these areas
   • The health systems in these areas are being overwhelmed with the rising number of cases.
   • Sectors like tourism are severely affected which are important in the growth of the economy.
   • Emerging markets and developing countries are also dependent on external finance including remittances.
4. Due to covid-19 crisis, there has been a disruption in both supply and demand in the global economy.
5. Some of the reasons for supply disruptions are:
   • Infections following coronavirus
   • Reduction in labour supply
   • Lockdowns
   • Business closures
   • Social distancing
6. Some of the reasons for demand disruptions are:
   • Layoffs
   • Loss of income arising from unemployment, the morbidity of quarantines.
7. The report also mentions that around 90 million people are expected to fall into extreme deprivation in 2020.
8. Global Growth is projected at -4.4 percent (against an earlier projection of -5.2 percent.)
9. The growth projection in 2021 is 5.2 percent.
10. The report also predicted that the output in advanced and emerging economies will remain below 2019 levels, with an exception of China.
11. Manufacturing-led economies recover better than the economies that rely on contact-intensive services and oil export.
12. Uneven recoveries between advanced economies and developing economies are projected in 2020.
13. The report also mentions the severe setback to the improvements in standards of living. It states, “The cumulative loss in output relative to the pre-pandemic projected path is projected to grow from 11 trillion over 2020-21 to 28 trillion over 2020-25.”

Proposals of World Economic Outlook Report 2020

The World Economic Outlook report called for multiple ways to strengthen the economy amid an economic slowdown. It proposed the following actions:

1. Greater International Collaboration – The need for countries to work together in the time of pandemic can help in faster economic growth.
2. The need to limit persistent economic damage – It proposed the governments should continue income support through targeted cash transfers, wage subsidies, and unemployment insurance.
3. Design of policies that promote strong, sustainable and equitable economic growth.

World Economic Outlook Report 2020 & India

The important points to be noted w.r.t India’s economic growth as predicted by the IMF’s World Economic Outlook Report are:

1. Industrial production in India has been severely hit amid economic slowdown followed by the COVID-19 crisis.
2. The IMF’s World Economic Report of October 2020 mentions that India will be worst affected in both the short and long term.
3. IMF’s WEO proposed that Bangladesh’s per capita income is expected to be higher than India’s in 2020.
4. It projected the growth rate of 8.8 percent in 2021. The IMF stated, “The economy is projected to contract by 10.3 per cent in 2020.”

World Economic Outlook and Global Growth Projections 2020-21

The growth projections of a few advanced economies and emerging and developing economies, as mentioned by IMF’s WEO are given in the table below:

Aspirants should note down the estimates proposed by the international organisations as these are helpful for UPSC Mains answer writings. The IMF’s World Economic Outlook report findings can be useful for UPSC Mains GS 2, GS 3 and essay papers.

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